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Rabobank: water markets essential to managing scarcity

Efficient regulation in water markets is vital to deal with growing pressure on global water resources, says a new report.

Efficient water markets will be crucial to heading off a projected global water deficit of 40 percent by 2030, according to a recently released report by Rabobank’s Food and Agribusiness Research & Advisory team.

It warns a failure to price water to reflect its scarcity is a key cause of overuse, and even among developed economies water market regulation is too fragmented. The report cites major agricultural regions of the US as an example: in drought-hit California, where the vast majority of crops rely on irrigation, surface water sources are regulated by a complex, multi-tiered rights system, while groundwater sources went virtually unregulated until 2014.

Instead, the report urges the formation and strengthening of water markets with both public and private sector participation to ensure efficient use of water for as increases in population, urbanisation, incomes and energy consumption tax the global water supply.

Australia’s implementation of a cap and trade system in the Murray-Darling Basin is lauded as an effective model that survived the test of a recent dry period.

“Water is not only a primary input, it’s also an essential input. So in the long term, it’s obviously very important,” Vernon Crowder, one of the study’s authors, told Agri Investor.

The report cites legally defined and protected property rights, transparency and measurement in consumer use, and storage and transportation infrastructure as necessities for well-functioning water markets.

Although most developed economies either have these resources in place, or could implement them, piecemeal regulation of use is portrayed as a barrier to efficient water markets in many.

Another example of fragmentation highlighted in the report is the multiple state and local jurisdictions which govern the use of the Ogallala Aquifer. The groundwater source stretches beneath eight states in the US Great Plains region, and cohesive regulation of the  source has been extremely challenging, according to Rabobank. The report estimates that, as a result,  the aquifer has been depleted by 30 percent in the last 50 years.

In developing nations the situation is even more dire, said Crowder, citing a UN report estimating that 3.5 billion people suffered from insufficient access to safe drinking water and sanitation in 2014.

Crowder said the majority of these people live in areas where water rights are poorly defined or enforced due to weak or unstable governance. A correlation between poverty and instability means these same areas are less likely than developed countries to be able the infrastructure needed to reduce volatility in supply, he added.

However, some of the factors that will increase demand, such as rising incomes in the developing world, will also help make water use more effective, by, for example, enabling that infrastructure investment, Crowder said.

The authors of the report do note markets will not benefit everyone; some smallholders may see higher water prices, and some consumers will see their water rights weakened. But effective water markets for the most part reduce volatility and ensure the availability of water for essential and high-value uses.